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May 01, 2020

WisdomTree Announces First Quarter 2020 Results – Diluted Loss Per Share of ($0.06), or Earnings Per Share of $0.07, as adjusted

NEW YORK, May 01, 2020 (GLOBE NEWSWIRE) -- WisdomTree Investments, Inc. (NASDAQ: WETF) today reported financial results for the first quarter of 2020.

During the first quarter of 2020, market declines arising from the COVID-19 pandemic adversely impacted the market performance of most financial assets and sectors of the economy, including the AUM that we manage.  While we have experienced a recent decline in revenue arising from this volatility, we continue to operate without disruption.

$21.9 million of non-cash charges, including (i) a $19.7 million impairment charge related to our financial interests in AdvisorEngine in anticipation of our exit from this investment and (ii) a loss on revaluation of deferred consideration of $2.2 million.

($8.6) million net loss, or $11.21 million net income, as adjusted, see “Non-GAAP Financial Measurements” for additional information.    

$50.3 billion of ending AUM, a decrease of 20.9% resulting from the market declines associated with the COVID-19 pandemic.

$536 million of net outflows ($182 million of net inflows excluding HEDJ/DXJ), driven by outflows from our international developed market equity and U.S. equity products, partly offset by inflows into our commodity products.

0.43% average global advisory fee, a decrease of 1.0 basis point due to AUM mix shift.

$63.9 million of operating revenues, a decrease of 7.3% primarily due to lower average AUM and a lower average global advisory fee.

77.3% gross margin1, unchanged from the prior quarter.

24.5% operating income margin (25.1%1 as adjusted), a 3.0 point increase (3.1 point increase, as adjusted1) primarily due to reduced discretionary spending as a result of the COVID-19 pandemic.

$5.0 million of available capital used to pay down debt, in connection with our capital management strategy.

$0.03 quarterly dividend declared, payable on May 27, 2020 to stockholders of record as of the close of business May 13, 2020.

Update from Jonathan Steinberg, WisdomTree CEO


“The combination of our investments in technology over the past several years and our resilient business model allowed us to seamlessly work through these unprecedented circumstances with no compromise to our high standards of operational excellence and client service. We remain committed to helping our clients navigate these markets, manage their businesses and better serve their customers while protecting our number one asset, our employees.”

“Like all asset managers, market declines have impacted our business, but we are responsibly managing costs and WisdomTree remains differentiated, confident and well positioned for the future. March disrupted the strong momentum we had built in the business, but the setback was only temporary, and we remain focused on our 2020 plan of growth, performance and innovation.”

OPERATING AND FINANCIAL HIGHLIGHTS

 Three Months Ended
 Mar. 31,
2020
Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019
Consolidated Operating Highlights ($, in billions):     
AUM $  50.3 $  63.6 $  60.0 $    60.4 $  59.1 
Net inflows/(outflows) $  (0.5)$  0.4 $    (0.7)$    0.3 $  0.6 
Average AUM $  59.8 $  61.9  $  60.3 $    58.6 $  57.7 
Average advisory fee    0.43%   0.44%   0.44%   0.45%   0.46%
      
      
Consolidated Financial Highlights ($, in millions, except per share amounts):     
Operating revenues $  63.9 $  68.9 $  67.7  $  66.3 $  65.5 
Net (loss)/income $   (8.6)$  (25.9)$  4.2  $  2.5 $  8.8 
Diluted (loss)/earnings per share $  (0.06)$  (0.17)$  0.02 $  0.01 $  0.05 
Operating income margin   24.5%   21.5%   23.8%   18.0%   16.3%
As Adjusted (Non-GAAP1):     
Gross Margin    77.3%   77.3%   77.7%   76.5%   76.8%
Net income, as adjusted $  11.2 $  10.1 $   10.6 $  7.8 $  7.7 
Diluted earnings per share, as adjusted $  0.07 $  0.06 $  0.06 $  0.05 $  0.05 
Operating income margin, as adjusted    25.1%   22.0%   24.1%   20.2%   19.9%
      

RECENT BUSINESS DEVELOPMENTS

 
Company News
  • In February 2020, we completed the sale of our Canadian ETF business to CI Financial Corp.
  • In March 2020, we were awarded ‘Best European Commodity ETF Provider’ at the ETF Express 2020 European Awards.
Product News
  • In February 2020, we launched two Siegel-WisdomTree Model Portfolios, in collaboration with Jeremy Siegel, WisdomTree’s Senior Investment Strategy Advisor and Professor of Finance at The Wharton School; and we launched the EURO trading line for the WisdomTree Bitcoin ETP. The WisdomTree Bitcoin ETP listed on Six, the Swiss stock exchange is now available in Euro (WBTC) and USD (BTCW) trading currencies.
  • In March 2020, we launched the WisdomTree Battery Solutions UCITS ETF (VOLT) on the London Stock Exchange, Borsa Italiana and Boerse Xetra. 


 
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
 
 Three Months Ended
 Mar. 31,
2020
Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019
Operating Revenues:     
Advisory fees$62,950  $68,179  $67,006  $65,627  $64,840 
Other income 924   728   712   666   645 
Total revenues 63,874   68,907   67,718   66,293   65,485 
Operating Expenses:                      
Compensation and benefits 17,295   19,280   18,880   21,300   21,301 
Fund management and administration 14,485   15,650   15,110   15,576   15,166 
Marketing and advertising 2,468   3,551   3,022   2,910   2,680 
Sales and business development 3,417   5,329   4,354   4,171   4,422 
Contractual gold payments 3,760   3,516   3,502   3,110   3,098 
Professional and consulting fees 1,273   1,604   1,259   1,296   1,482 
Occupancy, communications and equipment 1,551   1,587   1,549   1,548   1,618 
Depreciation and amortization 256   253   259   264   269 
Third-party distribution fees 1,355   1,146   1,503   1,919   2,400 
Acquisition and disposition-related costs 383   366   190   33   313 
Other 1,997   1,816   1,959   2,255   2,053 
Total operating expenses 48,240   54,098   51,587   54,382   54,802 
Operating income 15,634   14,809   16,131   11,911   10,683 
Other Income/(Expenses):     
Interest expense (2,419)  (2,606)  (2,832)  (2,910)  (2,892)
(Loss)/gain on revaluation of deferred consideration – gold payments (2,208)  (5,354)  (6,306)  (4,037)  4,404 
Interest income 163   936   799   818   779 
Impairments (19,672)  (30,138)        (572)
Other gains and losses, net (2,507)  (2)  843   284   (4,627)
(Loss)/income before income taxes (11,009)  (22,355)  8,635   6,066   7,775 
Income tax (benefit)/expense (2,371)  3,525   4,483   3,587   (1,049)
Net (loss)/income$(8,638) $(25,880) $4,152  $2,479  $8,824 
(Loss)/earnings per share – basic($0.06) ($0.17) $0.02   $0.01   $0.05 
(Loss)/earnings per share – diluted($0.06) ($0.17) $0.02   $0.01   $0.05 
Weighted average common shares – basic 152,519   151,948   151,897   151,818   151,625 
Weighted average common shares – diluted 152,519   151,948   167,163   167,249   166,811 
      
As Adjusted (Non-GAAP1)     
Compensation and benefits$17,295  $19,280  $18,880  $19,825  $19,281 
Operating expenses$47,857  $53,732  $51,397  $52,874  $52,469 
Operating income$16,017  $15,175  $16,321  $13,419  $13,016 
Income before income taxes$14,358  $13,503  $15,131  $11,611  $10,586 
Income tax expense$3,134  $3,396  $4,489  $3,798  $2,849 
Net income$11,224  $10,107  $10,642  $7,813  $7,737 
Earnings per share – diluted$0.07  $0.06  $0.06  $0.05  $0.05 
      

QUARTERLY HIGHLIGHTS

Operating Revenues

  • Operating revenues decreased 7.3% from the fourth quarter of 2019 primarily due to lower average AUM of our U.S. listed products arising from market depreciation and net outflows, as well as a 1 basis point decline in our average global advisory fee due to AUM mix shift.

  • Operating revenues decreased 2.5% from the first quarter of 2019 primarily due to lower average AUM of our U.S. listed products arising from market depreciation and net outflows, as well as a 3 basis point decline in our average global advisory fee due to AUM mix shift.  These declines were partly offset by higher average AUM of our International listed products.  

  • Our average global advisory fee was 0.43%, 0.44% and 0.46% during the first quarter of 2020, the fourth quarter of 2019 and the first quarter of 2019, respectively.

Operating Expenses

  • Operating expenses decreased 10.8% from the fourth quarter of 2019 due to lower discretionary spending as a result of the COVID-19 pandemic, including lower sales and business development costs and marketing expenses.  Fund management and administration costs were lower due to one-time costs recognized in the prior-period as we transitioned to new market making arrangements, as well as lower fund management and administration expenses resulting from the sale of our Canadian ETF business.  Compensation expenses declined due to lower incentive compensation accruals, partly offset by seasonally higher payroll taxes associated with bonus payments made in the first quarter of 2020. 

  • Operating expenses decreased 12.0% from the first quarter of 2019 largely due to lower compensation resulting from lower incentive compensation accruals as well as $2.0 million of severance expense included in the prior period, lower third-party distribution fees and lower sales and business development expenses.

Other Income/(Expenses)

  • We recognized a non-cash loss on revaluation of deferred consideration of ($2.2) million and ($5.4) million during the first quarter of 2020 and fourth quarter of 2019, respectively, and a non-cash gain on revaluation of deferred consideration of $4.4 million during the first quarter of 2019.  These (losses)/gains arose due to an increase/(decrease) in forward-looking gold prices when compared to the previous periods forward-looking gold curves.  The magnitude of any gain or loss recognized is highly correlated to the magnitude of the change in the forward-looking price of gold.

  • Interest expense decreased 7.2% from the fourth quarter of 2019 due to a lower level of debt outstanding.  During the first quarter of 2020, we used $5.0 million of available capital to pay down our debt in connection with our capital management strategy.

  • During the first quarter of 2020 and fourth quarter of 2019, we recognized a non-cash impairment charge of $19.7 million and $30.1 million, respectively, on our investment in AdvisorEngine.

  • Other gains and losses, net, includes charges of $6.0 million and $4.3 million for the first quarter of 2020 and the first quarter of 2019, respectively, arising from a release of a tax-related indemnification asset upon the expiration of the statute of limitations.  An equal and offsetting benefit has been recognized in income tax expense.  In addition, during the first quarter of 2020, we recognized a gain of $2.9 million associated with the sale of our Canadian ETF business to CI Financial Corp.

Income Taxes

  • Our effective income tax rate for the first quarter of 2020 of 21.5% resulted in an income tax benefit of $2.4 million. Our tax rate differs from the federal statutory tax rate of 21% primarily due a tax benefit of $6.0 million recognized in connection with the release of the tax-related indemnification asset described above, a $2.9 million non-taxable gain recognized upon sale of our Canadian ETF business and a lower tax rate on foreign earnings, partly offset by a valuation allowance on capital losses, tax shortfalls associated with the vesting and exercise of stock-based compensation awards and a non-deductible loss on revaluation of deferred consideration.
     
  • Our adjusted effective income tax rate was 21.8%1.

CONFERENCE CALL

WisdomTree will discuss its results and operational highlights during a conference call on Friday, May 1, 2020 at 9:00 a.m. ET. The call-in number will be (877) 303-7209. Anyone outside the U.S. or Canada should call (970) 315-0420. The slides used during the presentation will be available at http://ir.wisdomtree.com. For those unable to join the conference call at the scheduled time, an audio replay will be available on http://ir.wisdomtree.com.

ABOUT WISDOMTREE

WisdomTree Investments, Inc., through its subsidiaries in the U.S. and Europe (collectively, “WisdomTree”), is an ETF and ETP sponsor and asset manager headquartered in New York. WisdomTree offers products covering equity, commodity, fixed income, leveraged and inverse, currency and alternative strategies. WisdomTree currently has approximately $55.2 billion in assets under management globally.

WisdomTree® is the marketing name for WisdomTree Investments, Inc. and its subsidiaries worldwide.
________________________
1               See “Non-GAAP Financial Measurements.”


Contact Information: 
  
Investor RelationsMedia Relations
Jason Weyeneth, CFAJessica Zaloom
+1.917.267.3858+1.917.267.3735
jweyeneth@wisdomtree.com jzaloom@wisdomtree.com 
  


 
WisdomTree Investments, Inc.
Key Operating Statistics (Unaudited)
 Three Months Ended
 Mar. 31,
2020
 Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019
       
GLOBAL ETPs ($ in millions)      
       
Beginning of period assets$63,615  $59,981  $60,389  $59,112  $54,094 
Assets sold (778)            
Inflows/(outflows) (536)  390   (698)  343   561 
Market appreciation/(depreciation) (11,958)  3,247   471   934   4,544 
Fund closures (20)  (3)  (181)     (87)
End of period assets$50,323  $63,615  $59,981  $60,389  $59,112 
Average assets during the period$59,819  $61,858  $60,306  $58,575  $57,683 
Average advisory fee during the period 0.43%  0.44%  0.44%  0.45%  0.46%
Revenue days 91   92   92   91   90 
Number of ETFs – end of the period 331   349   348   536   534 
       
U.S. LISTED ETFs ($ in millions)      
       
Beginning of period assets$40,600  $37,592  $39,220  $39,366  $35,486 
Inflows/(outflows) (1,273)  563   (1,198)  (166)  147 
Market appreciation/(depreciation) (10,424)  2,448   (430)  20   3,820 
Fund closures (10)  (3)        (87)
End of period assets$28,893  $40,600  $37,592  $39,220  $39,366 
Average assets during the period$36,936  $39,094  $37,857  $38,945  $38,061 
Average advisory fee during the period 0.43%  0.44%  0.44%  0.44%  0.45%
Number of ETFs – end of the period 77   80   80   79   77 
       
INTERNATIONAL LISTED ETPs ($ in millions)      
       
Beginning of period assets$23,015  $22,389  $21,169  $19,746  $18,608 
Assets sold (778)            
Inflows/(outflows) 737   (173)  500   509   414 
Market appreciation/(depreciation) (1,534)  799   901   914   724 
Fund closures (10)     (181)      
End of period assets$21,430  $23,015  $22,389  $21,169  $19,746 
Average assets during the period$22,883  $22,764  $22,449  $19,630  $19,622 
Average advisory fee during the period 0.43%  0.44%  0.44%  0.46%  0.47%
Number of ETPs – end of the period 254   269   268   457   457 
       
PRODUCT CATEGORIES ($ in millions)      
       
Commodity & Currency      
Beginning of period assets$20,326  $19,954  $18,445  $16,979  $16,212 
Inflows/(outflows) 780   (266)  532   564   228 
Market appreciation/(depreciation) (1,018)  638   977   902   539 
End of period assets$20,088  $20,326  $19,954  $18,445  $16,979 
Average assets during the period$20,643  $20,146  $19,796  $16,912  $16,994 
       
U.S. Equity      
Beginning of period assets$17,746  $16,296  $15,903  $15,759  $13,222 
Inflows/(outflows) (285)  458   241   108   639 
Market appreciation/(depreciation) (5,302)  992   152   36   1,898 
End of period assets$12,159  $17,746  $16,296  $15,903  $15,759 
Average assets during the period$16,022  $16,983  $15,885  $15,690  $14,823 
       
International Developed Market Equity      
Beginning of period assets$13,089  $12,243  $13,391  $14,141  $14,309 
Inflows/(outflows) (1,107)  (139)  (1,011)  (741)  (1,575)
Market appreciation/(depreciation) (3,300)  985   (137)  (9)  1,407 
End of period assets$8,682  $13,089  $12,243  $13,391  $14,141 
Average assets during the period$11,515  $12,684  $12,453  $13,675  $14,280 
       


 
 Three Months Ended
 Mar. 31,
2020
 Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019
       
Emerging Market Equity      
Beginning of period assets$6,494  $5,787  $6,062  $5,714  $5,275 
Inflows/(outflows) 59   193   173   355   (94)
Market appreciation/(depreciation) (1,887)  514   (448)  (7)  533 
End of period assets$4,666  $6,494  $5,787  $6,062  $5,714 
Average assets during the period$6,002  $6,082  $5,824  $5,767  $5,492 
       
Fixed Income      
Beginning of period assets$3,633  $3,390  $4,009  $3,772  $2,345 
Inflows/(outflows) 17   212   (601)  219   1,403 
Market appreciation/(depreciation) (86)  31   (18)  18   24 
End of period assets$3,564  $3,633  $3,390  $4,009  $3,772 
Average assets during the period$3,697  $3,589  $3,792  $3,867  $3,268 
       
Leveraged & Inverse      
Beginning of period assets$1,058  $1,046  $1,019  $1,085  $981 
Inflows/(outflows) (81)  14   (1)  (59)  147 
Market appreciation/(depreciation) (78)  (2)  28   (7)  (43)
End of period assets$899  $1,058  $1,046  $1,019  $1,085 
Average assets during the period$1,043  $1,078  $1,053  $1,075  $1,074 
       
Alternatives      
Beginning of period assets$394  $461  $505  $616  $739 
Inflows/(outflows) (77)  (68)  (45)  (106)  (138)
Market appreciation/(depreciation) (55)  1   1   (5)  15 
End of period assets$262  $394  $461  $505  $616 
Average assets during the period$358  $437  $483  $563  $653 
       
Closed ETPs      
Beginning of period assets$875  $804  $1,055  $1,046  $1,011 
Assets sold (778)            
Inflows/(outflows) 158   (14)  14   3   (49)
Market appreciation/(depreciation) (232)  88   (84)  6   171 
Fund closures (20)  (3)  (181)     (87)
End of period assets$3  $875  $804  $1,055  $1,046 
Average assets during the period$539  $859  $1,020  $1,026  $1,099 
       
Headcount 210   208   212   214   216 
                    
Note: Previously issued statistics may be restated due to fund closures and trade adjustments
Source: WisdomTree



 
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
      
 Mar. 31,
2020

  Dec. 31,
2019
 (Unaudited)
   
ASSETS     
Current assets:     
Cash and cash equivalents$68,429  $74,972 
Securities owned, at fair value 20,261   17,319 
Accounts receivable 22,728   26,838 
Prepaid expenses 4,221   3,724 
Other current assets 171   207 
Total current assets 115,810   123,060 
Fixed assets, net 7,914   8,127 
Notes receivable 8,500   28,172 
Securities held-to-maturity 10,864   16,863 
Deferred tax assets, net 2,863   7,398 
Investments 11,192   11,192 
Right of use assets – operating leases 17,680   18,161 
Goodwill 85,856   85,856 
Intangible assets 601,247   603,294 
Other noncurrent assets 750   983 
Total assets$862,676  $903,106 
LIABILITIES AND STOCKHOLDERS’ EQUITY       
LIABILITIES       
Current liabilities:       
Fund management and administration payable$22,053  $22,021 
Compensation and benefits payable 3,424   26,501 
Deferred consideration – gold payments 14,500   13,953 
Securities sold, but not yet purchased, at fair value 469   582 
Operating lease liabilities 3,470   3,682 
Income taxes payable 1,284   3,372 
Accounts payable and other liabilities 9,129   8,930 
Total current liabilities 54,329   79,041 
Debt 171,548   175,956 
Deferred consideration – gold payments 160,800   159,071 
Operating lease liabilities 18,661   19,057 
Total liabilities 405,338   433,125 
Preferred stock – Series A Non-Voting Convertible, par value $0.01; 14.750 shares authorized, issued and outstanding 132,569   132,569 
STOCKHOLDERS’ EQUITY       
Common stock, par value $0.01; 250,000 shares authorized:       
Issued and outstanding: 156,424 and 155,264 at March 31, 2020 and December 31, 2019, respectively 1,564   1,553 
Additional paid-in capital 349,495   352,658 
Accumulated other comprehensive income 92   945 
Accumulated deficit (26,382)  (17,744)
Total stockholders’ equity 324,769   337,412 
Total liabilities and stockholders’ equity$862,676  $903,106 
        

  

 
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(Unaudited)
 
 Three Months Ended
 Mar. 31,
2020

Mar. 31,
2019

Cash flows from operating activities:  
Net (loss)/income$(8,638) $8,824 
Adjustments to reconcile net (loss)/income to net cash (used in)/provided by operating activities:  
Impairments 19,672   572 
Advisory fees received in gold and other precious metals (13,860)  (11,389)
Deferred income taxes 4,526   3,048 
Contractual gold payments 3,760   3,098 
Stock-based compensation 3,239   3,072 
Gain on sale –Canadian ETF business (2,877)   
Loss/(gain) on revaluation of deferred consideration – gold payments 2,208   (4,404)
Amortization of right of use asset 798   798 
Amortization of credit facility issuance costs 723   711 
Paid-in-kind interest income    (595)
Depreciation and amortization 256   269 
Other (31)  3 
Changes in operating assets and liabilities:  
Securities owned, at fair value (2,942)  2,454 
Accounts receivable 5,850   (1,939)
Income taxes payable (2,032)  (604)
Prepaid expenses (616)  419 
Gold and other precious metals 9,838   7,975 
Other assets 139   182 
Fund management and administration payable 537   4,274 
Compensation and benefits payable (22,688)  (9,250)
Securities sold, but not yet purchased, at fair value (112)  (360)
Operating lease liabilities (926)  (881)
Accounts payable and other liabilities 542   1,575 
Net cash (used in)/provided by operating activities (2,634)  7,852 
Cash flows from investing activities:       
Purchase of fixed assets (50)  (7)
Proceeds from held-to-maturity securities maturing or called prior to maturity 6,030   18 
Proceeds from sale of Canadian ETF business, net 2,774    
Net cash provided by investing activities 8,754   11 
Cash flows from financing activities:       
Dividends paid (5,136)  (5,097)
Repayment of debt (5,000)   
Shares repurchased (1,495)  (2,005)
Proceeds from exercise of stock options 240   14 
Net cash used in financing activities (11,391)  (7,088)
(Decrease)/increase in cash flows due to changes in foreign exchange rate (1,272)  383 
(Decrease)/increase in cash and cash equivalents (6,543)  1,158 
Cash and cash equivalents – beginning of year 74,972   77,784 
Cash and cash equivalents – year$68,429  $78,942 
Supplemental disclosure of cash flow information:       
Cash paid for taxes$1,147  $707 
Cash paid for interest$2,312  $2,224 
        

Non-GAAP Financial Measurements

In an effort to provide additional information regarding our results as determined by GAAP, we also disclose certain non-GAAP information which we believe provides useful and meaningful information. Our management reviews these non-GAAP financial measurements when evaluating our financial performance and results of operations; therefore, we believe it is useful to provide information with respect to these non-GAAP measurements so as to share this perspective of management. Non-GAAP measurements do not have any standardized meaning, do not replace nor are superior to GAAP financial measurements and are unlikely to be comparable to similar measures presented by other companies. These non-GAAP financial measurements should be considered in the context with our GAAP results. The non-GAAP financial measurements contained in this release include:

  • Adjusted compensation, operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share.  We disclose adjusted compensation, operating income, operating expenses, income before income taxes, income tax expense, net income and diluted earnings per share as non-GAAP financial measurements in order to report our results exclusive of items that are non-recurring or not core to our operating business.  We believe presenting these non-GAAP financial measures provides investors with a consistent way to analyze our performance.  These non-GAAP financial measures exclude the following:

    • Unrealized gains or losses on the revaluation of deferred consideration:  Deferred consideration is an obligation we assumed in connection with the ETFS acquisition that is carried at fair value.  This item represents the present value of an obligation to pay fixed ounces of gold into perpetuity and is measured using forward-looking gold prices.  Changes in the forward-looking price of gold may have a material impact on the carrying value of the deferred consideration and our reported financial results.  We exclude this item when calculating our non-GAAP financial measurements as it is not core to our operating business.  The item is not adjusted for income taxes as the obligation was assumed by a wholly-owned subsidiary of ours that is based in Jersey, a jurisdiction where we are subject to a zero percent tax rate.

    • Tax shortfalls and windfalls upon vesting and exercise of stock-based compensation awards: GAAP requires the recognition of tax windfalls and shortfalls within income tax expense.  These items arise upon the vesting and exercise of stock-based compensation awards and the magnitude is directly correlated to the number of awards vesting/exercised as well as the difference between the price of our stock on the date the award was granted and the date the award vested or was exercised.  We exclude these items when calculating our non-GAAP financial measurements as they introduce volatility in earnings and are not core to our operating business.

    • Other items:  Impairment charges, gain recognized upon sale of our Canadian ETF business, severance expense and acquisition and disposition-related costs are excluded when calculating our non-GAAP financial measurements.

  • Adjusted effective income tax rate.  We disclose our adjusted effective income tax rate as a non-GAAP financial measurement in order to report our effective income tax rate exclusive of items that are non-recurring or not core to our operating business.  We believe reporting our adjusted effective income tax rate provides investors with a consistent way to analyze our income taxes.  Our adjusted effective income tax rate is calculated by dividing adjusted income tax expense by adjusted income before income taxes.  See above for information regarding the items that are excluded.  

  • Gross margin and gross margin percentage.  We disclose our gross margin and gross margin percentage as non-GAAP financial measurements because we believe they provide investors with a consistent way to analyze the amount we retain after paying third-party service providers to operate our ETPs.  These measures also assist us in analyzing the profitability of our products.  We define gross margin as total operating revenues less fund management and administration expenses.  Gross margin percentage is calculated as gross margin divided by total operating revenues. 

  • Adjusted operating income margin.  We disclose adjusted operating income margin as a non-GAAP financial measurement in order to report our operating income margin exclusive of items that are non-recurring or not core to our operating business.   
 
WISDOMTREE INVESTMENTS, INC. AND SUBSIDIARIES
GAAP to NON-GAAP RECONCILIATION (CONSOLIDATED)
(in thousands)
(Unaudited)
 
 Three Months Ended
Adjusted Net Income and Diluted Earnings per Share:
Mar. 31,
2020
 Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019

Net (loss)/income, as reported
$(8,638) $(25,880) $4,152  $2,479  $8,824 
Add back/(deduct): Loss/(gain) on revaluation of deferred consideration 2,208   5,354   6,306   4,037   (4,404)
Add back: Impairments, net of income taxes 19,672   30,138         572 
Deduct: Gain recognized upon sale of our Canadian ETF business (2,877)            
Add back: Severance expense, net of income taxes          1,194   1,521 
Add back: Tax shortfalls upon vesting and exercise of stock-based compensation awards 501   142   30   76   971 
Add back: Acquisition and disposition-related costs, net of income taxes 358   353   154   27   253 
Adjusted net income$11,224  $10,107  $10,642  $7,813  $7,737 
Weighted average common shares - diluted 167,561   167,203   167,163   167,249   166,811 
Adjusted earnings per share - diluted$0.07  $0.06  $0.06  $0.05  $0.05 
                    
                    
                    
 Three Months Ended
Gross Margin and Gross Margin Percentage:Mar. 31,
2020
 Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019

Operating revenues
$63,874  $68,907  $67,718  $66,293  $65,485 
Less: Fund management and administration (14,485)  (15,650)  (15,110)  (15,576)  (15,166)
Gross margin$49,389  $53,257  $52,608  $50,717  $50,319 
Gross margin percentage 77.3%  77.3%  77.7%  76.5%  76.8%


       
 Three Months Ended  
Adjusted Operating Income and Adjusted Operating
Income Margin:  
Mar. 31,
2020
 Dec. 31,
2019
Sept. 30,
2019  
June 30,
2019  
Mar. 31,
2019  

Operating revenues 
$  63,874  $  68,907  $  67,718  $  66,293  $  65,485 
Operating income $  15,634  $  14,809  $  16,131  $  11,911  $  10,683  
Add back: Severance expense, before income taxes    —      —      —      1,475     2,020 
Add back: Acquisition and disposition-related costs, before income taxes    383     366     190     33     313  
Adjusted operating income $  16,017  $  15,175  $  16,321  $  13,419  $  13,016  
Adjusted operating income margin    25.1%    22.0%    24.1%    20.2%    19.9%


 Three Months Ended
Adjusted Compensation:

Mar. 31,
2020
  Dec. 31,
2019
Sept. 30,
2019
June. 30,
2019
Mar. 31,
2019

Compensation expense
$17,295  $19,280 $18,880 $21,300  $21,301 
Deduct: Severance expense, before income taxes        (1,475)  (2,020)
Adjusted compensation expense$17,295  $19,280 $18,880 $19,825  $19,281 


 Three Months Ended
Adjusted Total Operating Expenses:Mar. 31,
2020
 Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019

Total operating expenses
$48,240  $54,098  $51,587  $54,382  $54,802 
Deduct: Severance expense, before income taxes          (1,475)  (2,020)
Deduct: Acquisition and disposition-related costs, before income taxes (383)  (366)  (190)  (33)  (313)
Adjusted operating expenses$47,857  $53,732  $51,397  $52,874  $52,469 


 Three Months Ended
Adjusted Income Before Income Taxes:
Mar. 31,
2020
 Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019

(Loss)/income before income taxes
$(11,009) $(22,355) $8,635 $6,066 $7,775 
Add back/(deduct): Loss/(gain) on revaluation of deferred consideration 2,208   5,354   6,306  4,037  (4,404)
Add back: Impairments, before income taxes 19,672   30,138       572 
Add back: Loss recognized upon reduction of a tax-related indemnification asset 5,981          4,310 
Deduct: Gain recognized upon sale of our Canadian ETF business (2,877)          
Add back: Acquisition and disposition-related costs, before income taxes 383   366   190  33  313 
Add back: Severance expense, before income taxes         1,475  2,020 
Adjusted income before income taxes$14,358  $13,503  $15,131 $11,611 $10,586 


 Three Months Ended
Adjusted Income Tax Expense and Adjusted Effective Income Tax Rate:Mar. 31,
2020
 Dec. 31,
2019
Sept. 30,
2019
June 30,
2019
Mar. 31,
2019

Adjusted income before income taxes (above)
$14,358  $13,503  $15,131  $11,611  $10,586 
Income tax (benefit)/expense$(2,371) $3,525  $4,483  $3,587  $(1,049)
Add back: Tax benefit arising from reduction of a tax-related indemnification asset 5,981            4,310 
Deduct: Tax shortfalls upon vesting and exercise of stock-based compensation awards (501)  (142)  (30)  (76)  (971)
Add back: Tax benefit arising from acquisition and disposition-related costs 25   13   36   6   60 
Add back: Tax benefit arising from severance expense          281   499 
Adjusted income tax expense$3,134  $3,396  $4,489  $3,798  $2,849 
Adjusted effective income tax rate 21.8%  25.1%  29.7%  32.7%  26.9%
                    


Cautionary Statement Regarding Forward-Looking Statements

This press release contains forward-looking statements that are based on our management’s beliefs and assumptions and on information currently available to our management. Although we believe that the expectations reflected in these forward-looking statements are reasonable, these statements relate to future events or our future financial performance, and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “intends,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential,” “continue” or the negative of these terms or other comparable terminology. These statements are only predictions. You should not place undue reliance on forward-looking statements because they involve known and unknown risks, uncertainties and other factors, which are, in some cases, beyond our control and which could materially affect results. Factors that may cause actual results to differ materially from current expectations include, among other things, the risks described below. If one or more of these or other risks or uncertainties occur, or if our underlying assumptions prove to be incorrect, actual events or results may vary significantly from those implied or projected by the forward-looking statements. No forward-looking statement is a guarantee of future performance. You should read this press release completely and with the understanding that our actual future results may be materially different from any future results expressed or implied by these forward-looking statements.

In particular, forward-looking statements in this press release may include statements about

  • the COVID-19 pandemic; 
  • anticipated trends, conditions and investor sentiment in the global markets and ETPs;
  • anticipated levels of inflows into and outflows out of our ETPs;
  • our ability to deliver favorable rates of return to investors;
  • competition in our business;
  • our ability to develop new products and services;
  • our ability to maintain current vendors or find new vendors to provide services to us at favorable costs;
  • our ability to successfully operate and expand our business in non-U.S. markets; and
  • the effect of laws and regulations that apply to our business.

Our business is subject to many risks and uncertainties, including without limitation:

  • declining prices of securities, gold and other precious metals and other commodities can adversely affect our business by reducing the market value of the assets we manage or causing WisdomTree ETP investors to sell their fund shares and trigger redemptions;
  • fluctuations in the amount and mix of our AUM, whether caused by disruptions in the financial markets or otherwise, including but not limited to a pandemic event such as COVID-19, may negatively impact revenues and operating margins, and may impede our ability to refinance our debt upon maturity, increase the cost of borrowing or result in our debt being called prior to maturity;
  • competitive pressures could reduce revenues and profit margins;
  • we derive a substantial portion of our revenues from a limited number of products, and as a result, our operating results are particularly exposed to investor sentiment toward investing in the products’ strategies and our ability to maintain the AUM of these products, as well as the performance of these products and market-specific and political and economic risk;
  • a significant portion of our AUM is held in products with exposure to U.S. and international developed markets and we therefore have exposure to domestic and foreign market conditions and are subject to currency exchange rate risks;
  • withdrawals or broad changes in investments in our ETPs by investors with significant positions may negatively impact revenues and operating margins;
  • over the last few years, we have expanded our business globally. This expansion subjects us to increased operational, regulatory, financial and other risks;
  • many of our ETPs have a limited track record, and poor investment performance could cause our revenues to decline; and
  • we depend on third parties to provide many critical services to operate our business and our ETPs. The failure of key vendors to adequately provide such services could materially affect our operating business and harm WisdomTree ETP investors.

Other factors, such as general economic conditions, including currency exchange rate fluctuations, also may have an effect on the results of our operations. For a more complete description of the risks noted above and other risks that could cause our actual results to differ from our current expectations, see “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019.

The forward-looking statements in this press release represent our views as of the date of this press release. We anticipate that subsequent events and developments may cause our views to change. However, while we may elect to update these forward-looking statements at some point in the future, we have no current intention of doing so except to the extent required by applicable law. Therefore, these forward-looking statements do not represent our views as of any date other than the date of this press release.

RESTRICTED MATERIAL
This material is intended for Financial Professionals only

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